Exit strategy.

I have read a lot of posts lately about short and long term goals but what
if the unthinkable happens and you have to sell down have you got a exit strategy?

I have always focused on places that are in desirable locations, not on main roads,
close to schools , shops , transport and have made sure i do a small reno / tidy up
after settlement so the properties are in decent condition just incase i have to liquidate
quickly hopefully without a massive loss.

Would love to hear other peoples thoughts on what they have in place?
obviously if loans are locked in that just makes for another hit to the wallet
for break fees.

 

Diversification in other assets. Property is not liquid, if worst comes to worst I'd rather be able to sell shares as a first option than have no choice but to sell property.

Also other risk management includes -

• no x-coll
• not concentrating on one lender
• healthy cash/equity buffer
• personal insurances.

Selling property can take months so should be the very last resort.

 

Ditto Jess.

Early in our investing journey we were focused solely on property but have now diversified to include shares, ETFs (more liquid stuff). We also made sure that we have a good cash buffer for rainy days.

Also helps to make sure that income owners are adequately insured.

Some may disagree, but a credit card with a large enough credit limit which is only used as a last resort to tide you over before you have to sell down may be an option as well. You'd need to have a good deal of discipline to not abuse the credit though.

 

Nothing like cold hard cash and lots of it....key cash in offsets preferably in more than 1 bank.

As you property portfolio grows you need to keep at least 2 years wages...don't rely on selling in a bad market...a recipe for disaster...

 

Buy property early in the plan, leverage and then as the LVRs drop and your age rises (and land tax) sell a few properties and invest in higher yielding shares.

 

In Australia are there guarantees up to a certain amount if bank goes under like in UK (somewhere around GBP80k? from memory)

 

I think there are some guarantees - boom/bust cycles.

Ways you can reduce your risk, some mentioned

Timing the market and purchasing at the early stages of a rising market

Manage your debt/LVR

Cash buffers, accessing equity wherever/whenever possible

Sell down prior to a bust cycle (ie purchase 3, sell 2).... reduce debt, increase cash flow

Don't invest in one market, invest in any markets that are moving

Up skill to generate passive income, think outside the square ie add value etc.

I have gone from a buy and hold investor chasing CG some 9 years ago to an investor/developer, basically turning over stock to increase income ie build 3 villas, sell 2, keep 1 for cash flow Give me the money

Sometimes I will sell the lot purely to improve cash flow for bigger projects and for finance purposes. With each project I reduce debt, that is the plan, so far so good.

Another issue that should be priority, as important as preserving capital is strategizing to ensure that you can keep sourcing finance.

Accumulating property is one thing, but without the other you can not continue to invest. If you have serviceability issues manage it, work out what you need to do to keep moving forward.

MTR

 

Always work towards maximising cash flows and minimising risks where ever you can.

Insulate yourself as much as possible from the economic & market fluctuations via fixing rates & appropriate insurances.

Purchase property across multiple markets, leverage across multiple lenders and maintaining healthy cash flow & LVR buffers.

 

Seems to be a plan that many retirees have used, no more tenant issues

 

Great points everyone! I always have a decent cash buffer in place just incase
problems arise.
Still not comfortable investing in shares, i don't like investing in something
i don't understand very well it will defiantly be on the cards in the future.
My mentor always says once i get into shares ill stop buying property
zero maintenance , no tenant issues , easy to liquidate plus the dividends.

 

Plenty of cash, shares or other sources of income like annual leave etc is important.
Other than that having plenty of equity and not overstretching ensures I have a suitable SANF.

 

So, is it reasonable just to expect that up to 25% of capital gains will go in tax ?

The alternative is to wait until retirement and then sell down in a more orderly manner to reduce taxes.

We would love to sell down some Sydney properties now but the tax is a killer.

Cash flow could handle quite an interest rate increase.

 

I have posted on this before...here goes again...

Lets say you bought a property with all costs for $300k in 2010.

Lets say that you sell it for 620k in 2015..of which 20k is sell costs.

That leaves you with 300k profit. With a 50% capital gains reduction for holding over 1 year....you have a profit of 150k.

Now you can further reduce by pre-paying interest on your existing properties. Lets say that you have $2m in loans and you pre-pay 90k. That brings you profit to 60k.

Now if split it between husband and wife and assuming they are on 40% marginal rates...each would pay about 12k for their 30k share which added to their income.

So the total tax is only 24k...out of a profit of 300k. Which is less than 8% tax. You can further reduce this by salary sacrificing super in planning for this gain.

Hope this helps....

 

Thanks for the input Sash - something to think about for sure.

Prepaying interest defers the problem for a further year - but it does provide the opportunity for spreading the profit out a bit.

There is not much scope for us with salary sacrificing super - also the CG is a multiple of the example.

But I guess if sell early in the new financial year and then invest a bit more there is the opportunity to increase the interest prepayment.

Might be worthwhile.

 

Depends it you sell all of them at once...which would not be a great idea....

 

Talking about one big one in North Ryde - where prices seem to have got way ahead of themselves.

The others in Sydney, I think, are reasonable sustainable + (PPOR is not for sale).

 

Hi great question,

All of my properties are on low LVR's and i have paid off my PPOR last year on my 30th.
I think there are a few things i have implemented in what i do, to ensure I do not drown if somethings goes wrong.

1) None of my properties are crossed with each other.
2) My wife and I have saved up 100K in cash as a buffer should we both cant work for a while etc.
3) Our investment properties are all cash flow positive so all the extra cash sits in a offset account.

Sure we can buy more and more properties but I prefer in living and not drowning in debt.

 

Good stuff ...great achievement?

What happens if your loan principle is being extinguished at a rate of 150-200k pa...and compounding?

 

Good question, IP 1 - Value 400K and loan only 150K IP 2 - Value 600K and loan only 250K IP 3 - Value 340K and loan only 250.

I will shortly be selling two IP in the next three to four months as well.

 

Question.....und what will you do with zee capital gain...ya?